Do reduced non-wage labour costs lead to more and better jobs?

The tax wedge has risen in most Member States since 2010 as member states have sought to strengthen public finances following the global financial crisis. But increased taxes on labour may be detrimental to employment discouraging employers from creating new jobs and the non-employed from taking up employment. The Commission’s 2014 Joint Employment Report concluded that this is an issue in many Member States, especially for low wage and second income earners.

This project, which began in 2015, has investigated whether one form of lower non-wage labour cost: reduced employer social security contributions, was effective at generating new and sustainable employment. Reduced rates are often targeted at specific categories under-represented on the labour market – low-skilled workers, young and older workers, those in deprived regions, etc. The analysis focused on the extent to which reducing employer social security contributions was beneficial, or not, in terms of labour outcomes for the various groups targeted. The research comprises a literature review as well as a review of existing evaluations. Relevant recent policy reforms in the Member States is also described and summarised.